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Please estimate the value of a golf course?

Anonymous

How can this quesiton be approached? Thanks!

(edited)

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Vlad replied on 02/05/2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi,

In addition to what Bruno said, think about other ways to estimate the value:

  1. NPV of all the existing revenue streams that the company has
  2. Valuation using the comparable golf courses
  3. Valuation using the comparable transactions
  4. The fair value of land / buildings equipment. It may appear that the land where the golf course is located is more expensive than the value of the court. Imagine a situation when luxury houses were built around the court and you still account only for the book value of land
  5. Alternative use of land - maybe there is a commercial use of this land, that makes the value much higher than it currently is. Imagine if you want to completely get rid of the golf course and build a mall

Best

B
Expert
replied on 02/05/2018
NOT AVAILABLE

Hey anonymous,

Basically, this is just a valuation question.

My suggestion to crack is just to find all the streams of profits (both revenues and costs) arising from the golf course in one standard year (check for any particular flutuations year on year to guarantee you use a steady state in your final valuation; if it's not, control for it).

Additionally, brainstorm on some additional sources of revenues/profits that might be possible to do with the course that are not being exploited in today's activity/previous numbers forecast.

Once you have all of your robust estimates, you just need to discount all the future expected profits into the present with the NPV (Net Present Value, ask for the appropriate discount factor!).

Best

Bruno

PS: I'm assuming the golf course already exists and it's already being explored by some company; if not, the major change is that you need to brainstorm from the beggining on what are the major buckets of potential revenues (renting it for stand alone practises, tournments, classes, support bar, etc) and costs (staff, equipment, maintenance of the place, etc)

(edited)

Francesco replied on 02/10/2018
Ex BCG | MBB Specialist | #1 Expert for coaching sessions (1400+) with 100% recommendation rate

Hi Anonymous,

In general, there are three ways you can use to assess the value of something:

  • Discount Cash Flow. This is not done using profits, but free cash flow, which is a bit different (FCF: Revenues-Operating Costs-Taxes-Net investment-Change in Working Capital). Usually you can approximate to profits, but you should mention you know you should use FCF. To do so
    • Find free cash flow for one year
    • Add free cash flow for synergies/ subtract free cash flow from cannibalizations
    • Perform a DCF analysis (you can find below a link to understand how to do that)
  • Multiple in the industry. Consider the average multiple used in equivalent transaction related to something you know about the company, eg P/E ratio. Then apply the multiple to your case.
  • Asset value – fair market value of total assets minus total liabilities - considering the value of assets of the property.

Note: You have to subtract the debt, if present, at the end of the estimation. Forgetting debt is one of the most common mistakes done by candidates.

You can find more on the DCF at the following link:

https://www.preplounge.com/en/consulting-forum/case-net-present-value-calculations-325

Best,

Francesco